Out of Business

As Rob Ryan discovered, some innovation happens only after you leave your company

Lowell Gray has flown nearly 3,000 miles from Boston to get his hide tanned, so to speak, in a log cabin in western Montana. Gray, founder and CEO of a midsize regional Internet service provider (ISP) called Shore.Net, scribbles his company's business plan on a whiteboard. Meanwhile, Rob Ryan, the man who invited him here, leans back in his chair.

"If you want to be a great company, find a new solution," says Ryan, who is pushing Gray to find a way to distinguish four-year-old Shore.Net from all the other ISPs out there. "If you want to be a pissant company, don't find a solution."

Gray argues that Shore.Net's strength comes from running a better service, not from offering an innovative product. "If you do it better than anybody, you have a great business," he says.

"That's not going to hack it," insists Ryan, the founder and former chairman and CEO of Ascend Communications Inc., in Alameda, Calif. "You have to be a zebra with red spots instead of black-and-white stripes."

Clutching his marker and pacing in tight circles, Gray looks excited--or like someone who wants to throw up. "This is good," says the 37-year-old graduate of Harvard University. "It's making my head hurt. Which is why I came here."

Gray is one of more than 25 entrepreneurs who have met with Ryan in the past year to submit to the free, no-holds-barred coaching that is the cornerstone of Ryan's new foundation: Entrepreneur America. The program, run out of Ryan's sprawling Roaring Lion Ranch as a sort of boot camp for entrepreneurs, aims to help people turn their ideas into successful companies. Ryan's pupils range from professionals like Gray, who want advice about making their businesses grow, to kids fresh out of engineering school who don't know what a CEO is.

"I see them all make the same mistakes," 49-year-old Ryan remarks. "They put an incoherent business plan together, run around and talk to whoever they can in the venture-capital community, burn all their bridges, and then wonder why nobody returns their calls."

Ryan--born in the Bronx, N.Y., the son of a man who held down three jobs, including milkman and night watchman--knows a thing or two about being an entrepreneur. In 1989 he founded Ascend with three coworkers and an initial $2.5 million in venture-capital financing. The maker of remote-networking equipment, which went public in 1994, today has a market value of roughly $6 billion. In June 1995, 13 months after the initial public offering, Ryan stepped down as Ascend's CEO and chairman, following serious back surgery. He found himself a rich man with lots of time on his hands, and he decided to devote himself to helping young entrepreneurs.

So far, Ryan has helped two start-ups--NetCentric Corp . and Silicon Spice Inc.--get venture-capital funding, and he's working on a third, ChannelVision. Ryan has stayed closely involved with NetCentric and Silicon Spice, sitting on each company's board, helping with strategy, and owning a small chunk of stock. Ryan realizes he can't continue that level of involvement with every company that he hopes to get off the ground through Entrepreneur America. He wants to expand the program to get other successful company founders involved as mentors.

"If I could grow one great company a year, a really great company, that would be a great contribution to mankind," Ryan says.

The day before Ryan put Gray through the paces, he spent the whole day with an even less experienced entrepreneur. Twenty-five-year-old Randy Thomae doesn't have a company--or even a job. What the intense Massachusetts Institute of Technology graduate does have is ambition to burn and a laptop computer loaded with a plan for an Internet business called Agent Audio.

This morning in late January, Thomae has risen at his customary 5 a.m. and is tinkering with his plan in the living room of the four-bedroom guest house at the Roaring Lion Ranch, located on the outskirts of Hamilton, Mont. Free, comfortable lodging on this 1,200-acre spread is just part of what Ryan offers at Entrepreneur America. Visitors must pay their way to Montana, but once they're here Ryan houses them, feeds them, and may even saddle up some of his horses and guide them into the nearby wilderness of the Bitterroot Mountains.

The surroundings may be rugged, but the accommodations aren't. Like Ryan's office and home, a few thousand feet away, the guest house was constructed by Alpine Log Homes Inc., a high-priced log-home builder popular with CEOs and celebrities like Hank Williams Jr. and H. Ross Perot. At mealtimes, visitors sit down with Ryan and his wife, Terry, and enjoy tasty spa cuisine prepared by a local caterer.

On this morning, Thomae arrives at Ryan's six-room office building at 9:30 a.m., dressed in what is probably the only suit, tie, and wing tips ensemble in action in Hamilton on this day. Ryan, casually attired in jeans and hiking boots, settles down with Thomae in a conference room accented by black-and-white cowhide rugs.

As Thomae shows Ryan his business plan Ryan repeatedly interrupts to challenge the young engineer's assumptions about his product, a package of software and services that will enable radio stations to customize music for listeners. Thomae's plan has changed a lot since he first met Ryan, last year at the Ritz-Carlton Hotel in Boston, during one of Ryan's frequent forays to the area to scout out entrepreneurial talent. (He also travels regularly to California's Silicon Valley.) Thomae remembers how Ryan trashed the first draft of the Agent Audio slide presentation that Thomae planned to show to venture capitalists. "He said, 'This is garbage. No one will sit through this.' "

The critiques may sound harsh to an outsider, but entrepreneurs love them. "Rob can be very intimidating at times," says 24-year-old Ethan Mirsky, one of the founders of Silicon Spice. "But once you realize that he's being intimidating because you're up to the challenge, it's very motivating."

Generally friendly and garrulous, Ryan gets pumped up when talking about business, combining the passion of a motivational speaker with the bluntness of a drill sergeant. Although Ryan feels most valuable as a mentor to high-tech start-ups, he's willing to consider helping other kinds of ventures. Sometimes he's had to tell people that they don't have what it takes. "I see guys who don't have entrepreneurial skills. They're real followers. They can't assemble a team, and they have a shitty idea. I say, 'The best thing for you is to take a job at Procter & Gamble and learn a trade.' "

On this day, Thomae is trying to convince Ryan that he shouldn't promote his start-up as an Internet company, since so many Internet-based businesses aren't profitable. "I'm putting everything in terms of radio," says Thomae. "The Internet raises a lot of alarms."

Ryan doesn't agree and sketches a pie chart to illustrate the growing market for Internet advertising. "This is the hot, sexy part," he explains.

"But it's risky and unproven," Thomae counters.

"Yes, it's risky, but as an entrepreneur, that's where you put your bet."

Along with refining Thomae's business strategy, Ryan also doles out nuts-and-bolts advice. Sit, don't stand, when presenting your plan to venture capitalists. ("It's more informal," he says. "You can look them in the eye.") Arrive at least a half hour early and schmooze with the secretary for 15 minutes. ("You can get a lot of information from her later.") Use a flip chart, not a computer, for your presentation. ("Computers can fail.")

"Take this bullshit off," Ryan continues, pointing to a "confidential" notice at the bottom of a document on Thomae's computer screen. "The venture capitalists know this. And take out this," he says, motioning to the January 21 date. "Put your logo down here," he says, pointing to the bottom right-hand corner. "The eye scans from left to right."

Ryan tries to convince Thomae that at this stage of his career, moderate success is better than terrible failure. "In the first round, you don't want to hit a billion-dollar home run. You just need some success. You just don't want abysmal failure. That would corrupt your career as a budding entrepreneur."

Ryan--who studied to be a mathematician and spent the first 10 years of his career as an engineering manager at Burroughs, Digital, and Intel--did not hit his home run until he was in his forties and nurturing his second start-up. His first company, SoftCom, which he began in 1983, lasted only a year. Ryan says he had a great product--an Ethernet card that allowed PCs to communicate--but the company quickly ran out of money. In 1985 he sold SoftCom to Hayes Microcomputer Products Inc. for roughly $6 million, with most of the money going to his investors. Ryan signed a five-year employment contract with Hayes but chafed at being an employee again. In 1988, with two years remaining on his contract, he left to launch Ascend and was soon joined by three Hayes coworkers.

"I learned two huge lessons," says Ryan about SoftCom. "First, never start a company without a great team. Second, raise a lot of money."

Starting with $2.5 million in venture financing, Ascend made dynamic-bandwidth equipment to handle ISDN phone lines, which Ryan saw as the next communications revolution. When that market failed to materialize quickly, Ascend enhanced its product for videoconferencing. Then, in 1993, Ascend came out with the right product at the right time: a VCR-size box that connects multiple users to the Internet. The company became a huge success. In fact, BusinessWeek crowned Ascend the top small public stock of 1995.

But Ryan's success was tempered by health problems. Right before he had founded Ascend, he broke his back doing a flip-turn in a pool. Doctors recommended surgery, but Ryan held off. "Nobody would invest in a start-up whose CEO is in the hospital," he explains. By the time the company was approaching its initial public offering, the pain had become excruciating. Before road-show presentations, Ryan would get epidural injections to numb his back. He decided that as soon as the company completed its IPO, he would check into a hospital.

The nine-hour operation--in which surgeons slit Ryan open in both the front and the back to fuse vertebrae--was more debilitating than Ryan had expected. After working for several months from his home--giving presentations with flip charts while lying on his back--he began to realize that he wouldn't be able to resume the same grueling hours and travel schedule. "When I was lying at home recovering, I had a lot of time to think. I was in a lot of pain and realized that there are other things in life than working 15 hours a day. I said to my wife, Terry, 'When I get back, I will talk to the board about gracefully exiting.' "

The board agreed but asked him to continue as chairman. Ryan declined. "I pretty much said, 'That's yesterday.' But you miss it--the excitement and the competitiveness."

Retired at age 46, ryan quickly got bored. "Imagine yourself really, really wealthy but with no job. I was totally disenfranchised. You have nothing to do, and your friends are going to work."

Instead of becoming just another rich guy who spends his time investing in companies, Ryan decided to make a bigger impact by mentoring budding entrepreneurs. "Venture capitalists have money coming out the ying-yang. That's not needed," he says. Before he formally started Entrepreneur America, he began networking at MIT, checking out the research labs for brilliant students with an entrepreneurial spark.

He made one of his first finds, however, in a very different setting--George Lucas's Skywalker Ranch in Marin County, north of San Francisco. The famous movie director invited Ryan and a few others to brainstorm over lunch about an educational project. There Ryan met Sean O'Sullivan, then a 30-year-old graduate of Rensselaer Polytechnic Institute who had already successfully founded a company called MapInfo Corp. but who quit the business world to form a rock band. "Rob tried to convince me to start an Internet company," O'Sullivan recalls. "I said, 'No, no, no.' "

But eventually, Ryan prevailed, and O'Sullivan formed NetCentric Corp., a Cambridge, Mass., software company. Today the two-year-old company has 50 employees and is looking for 15 more. Although it isn't making money yet, NetCentric turned a big corner earlier this year when it announced that PSINet Inc., a global network-access provider, had placed a large order for its $20,000 POPware servers. Another big step: in February, Compaq Computer Corp. became NetCentric's hardware partner and made a multimillion-dollar investment in the fledgling company.

O'Sullivan says he considers Ryan, who sits on NetCentric's board and owns a small chunk of the company's stock, to be a cofounder. Ryan has also helped out by making calls and introductions for his company, O'Sullivan says, and has even offered to make presentations to customers. "I definitely have trouble sitting on a board and not acting like a CEO," Ryan admits. "At times I think I can be overbearing."

But O'Sullivan doesn't fault any aspect of Ryan's involvement. "He's an absolute marketing genius," says the young entrepreneur. "He said to me, 'When you're trying to win over a customer, just always be there. Be in their face, get out from behind your desk, get out on the road, and don't come back.' " O'Sullivan took that advice when trying to clinch the Compaq deal. He planned a 2-day visit to meet with Compaq executives in Houston, but he wound up staying 11 days, until he won them over.

"I ended up getting a haircut there and washing my clothes there and doing whatever it took to close the deal," he recalls. "That was a direct result of countless Rob stories of how he did that at Ascend. I did that, and it made a huge difference.

"I think there is a saying, 'There is no progress without the unreasonable man,' " notes O'Sullivan. "Unless you're absolutely unreasonable, things become the status quo. That's really the definition of Rob. You have to ask for the impossible. Certainly, Rob challenges people to do that."

Back in Montana, Ryan is challenging Randy Thomae, the 25-year-old MIT graduate, to be unreasonable. "Start-ups are not warm and fuzzy," he lectures. "They are the antithesis of warm and fuzzy. The bad ones are all about warm and fuzzy, and they fail.

"Some people think this is fun and games," Ryan continues. "It's not fun and games. Don't give your competitors any room to breathe. If they're in a room where they're gasping for oxygen, take away their oxygen. Cisco and Microsoft do the same." Thomae, who resembles a puppy more than a killer businessman, nods eagerly, soaking up the advice.

Ryan has been a catalyst for an entrepreneur even younger than Thomae. Ian Eslick, another MIT graduate who turned 24 years old in March, is one of the founders of Silicon Spice, a start-up that plans to make a new type of semiconductor chip. In January, Eslick and his three-person team secured funding from a top-tier venture firm, New Enterprise Associates (NEA), and the Chemical Materials Enterprise Association (CMEA).

"It was very obvious to me that Rob had therapeutically coached them all the way through," recalls NEA general partner Dick Kramlich. "He taught them how to orchestrate a business presentation and highlight key things." In fact, Ryan participated in the presentation, making the opening and closing statements, while Eslick handled the middle.

As a condition of funding, NEA has required that Ryan, who has invested in the company and holds about 5% of its stock, serve as interim CEO until the infant Silicon Valley company finds a more experienced executive to lead it. Ryan is currently chairman of the board and plans to remain in that spot. Eslick says it's been hard at times working with a "remote CEO," adding that Ryan can be very adamant about doing things his way. "Rob pushes for minimization of expenses," explains Eslick, who until recently ran the company out of the Palo Alto, Calif., garage where he also lives. "We will minimize, and he says, 'Minimize further.' "

But Eslick is quick to credit Ryan for getting them funded so quickly. "Rob has added unspeakably tremendous value to the company," says the serious, self-assured Eslick. "I met lots of company founders, but I think Rob is the best choice because he's unconventional and contrarian." He adds, "A lot of people at MIT snickered when I talked about starting a company. By the conventional formula, we should not even have been funded."

Ryan admits that it will be hard to mentor some new companies without getting pulled into their operations, as he has with Silicon Spice. But he knew Eslick and his team wouldn't get funded without his involvement, and he couldn't bear to pull out after they had worked so hard. "I took a pause because I was tired of doing companies, but I'm creeping back in. I'm being sucked back in."

Success Breeds Success

Instead of starting another new company, successful entrepreneurs are putting their time and money into helping the next generation of company builders. Rob Ryan is just one example.

In 1995 Barnett Helzberg Jr. established a mentoring program in Kansas City, Kans., after selling his chain of stores, Helzberg Diamond Shops, to Warren Buffett. Since then, the Helzberg Entrepreneurial Mentoring Program has hooked up more than 25 young businesses with experienced advisers. The mentors include H&R Block founder Henry Bloch, who has tutored three companies, as well as Helzberg, who works with four companies. Currently, the program--also sponsored by the University of Missouri­Kansas City and the Ewing Marion Kauffman Foundation, in Kansas City--focuses on local businesses. "It's such a natural," says the 62-year-old Helzberg about hooking up entrepreneurs with mentors, "but it's so underdone."

In Milwaukee, Marty Stein's three-year-old Partners for the Future Program has paired up more than 30 local minority-owned businesses with experienced mentors. The 60-year-old Stein owns a chain of optical stores, Stein Optical, and sold his pharmacy chain to Walgreen Co. in 1979. Stein has also helped set up a venture-capital fund, the Jewish Foundation for Economic Opportunity, which provides mentors and seed capital to minority-owned businesses.

Frank Batten, chairman of Landmark Communications and creator of the Weather Channel, last year donated $13.5 million to the University of Virginia's Darden Graduate School of Business Administration to establish the Batten Center for Entrepreneurial Leadership. The center will work with the University of Virginia and local high-tech businesses to help develop the greater Charlottesville area into a "technopolis."

In Bend, Oreg., meanwhile, 60-year-old Jim Schell has formed Opportunity Knocks, which organizes board-of-adviser teams for small-business owners in central Oregon. Schell, who founded the organization last year after starting four sports-related businesses in Minneapolis, says the program now has nine teams that meet monthly. "If you put 13 to 14 small-business people in a small room and control the discussion to some degree," Schell says, "someone will have the solution to almost every problem."

Back in Montana, Rob Ryan isn't the only successful entrepreneur who is trying to help others. In fact, the man whose company built Ryan's log home and office, Ken Thuerbach, CEO of Alpine Log Homes, has established venture-capital funds for local businesses and has set up three walk-in Entrepreneurship Centers with resources for small businesses. Thuerbach, an adjunct professor at the University of Montana, also established a business-plan competition for college students. "The business world has been good to me," he says. "You reach a point when you want to give back to the community."